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Published On: Tue, May 31st, 2016

A Bubble Bursts in China: The Dethroning of an Infamous Hedge-Fund Investor

Any investor whose worst performing fund achieved growth of a mere 800% in five years is going to understandably earn a fair degree of notoriety, not to mention a substantial following from investors looking to profit from their midas touch.

Checking over at Money Morning for details of how your investments were going would have been a pleasurable exercise for investors who were disciples of Xu Xiang, a stock market legend, that was until the bubble well and truly burst.

The unraveling of a legend

November 2015 was not a good time for Xu Xiang, who ran Shanghai Zexi Investment and had achieved legendary status as a result of some hugely impressive returns achieved for his funds, as it was the point that he was arrested on suspicion of insider trading.

The story before that spectacular fall from grace could easily have been the script from a Hollywood blockbuster that would make Gordon Gekko look un-ambitious, with funds run by Xiang rising by over 300% in the space of just a few months and his own personal wealth increasing by an estimated $300 million during his meteoric rise to fame in financial circles.

What caused the spectacular unraveling was the scrutiny placed on his methods amidst a sharp and heavy fall in Chinese stocks, causing highly-leveraged traders to bail out in a frenzied state of panic.

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Taking the blame

It seems that Chinese regulators were trying to find a cause and apportion some blame for the stock market crash that occurred during the summer of 2015.

It is fair to say that Xu Xiang was not the only investment trader under the spotlight and there have been a string of arrests in relation to insider trading and market manipulation, but he was certainly a high-profile casualty of the very public cleanup process.

It may well be that the finger of suspicion was fairly easy to point at someone like Xiang, especially when you consider that he very close links with a Zhou Jianming, who had been prosecuted back in 2008 for stock manipulation, receiving a fine of $30 million, which was equivalent to the gain he was alleged to have made.

Almost fireproof

Money can often provide you with a degree of power alongside the trappings of wealth and it seems that Xu Xiang had been able to remain as one of China’s wealthiest men for a sustained period of time, despite numerous corruption investigations.

Zexi Investment, the company that he was at the helm of, had become one of China’s most successful hedge funds and the returns that the fund managed to produce were truly stratospheric in comparison to the majority of their rivals.

There is no question that Xu Xiang managed to keep his cards very close to his chest, despite his growing public profile. He was renowned for his intense levels of secrecy and it is suggested that he managed to become so wealthy because he was able to trade on knowledge and information that hardly anyone else had access to.

This is a scenario and a strategy that is perceived to be an almost perfect formula for success in a country like China, where information is strictly controlled and not easy to access.

Xu Xiang successfully managed to keep a substantial amount of personal details and information about his specific trading techniques away from prying eyes for a very long time, adding a further layer of mystique about the man and fueling the legendary status.

It also seemed to create the impression that he was almost fireproof, which he probably was for a period of time.

Market in free-fall

When the Chinese stock market started a vicious downward spiral that saw it lose a third of its value in the space of just three weeks, it was almost inevitable that there was going to be a fair amount of finger pointing as stock market screens were awash with a sea of red figures.

Amazingly, Xu Xiang managed to maintain his “fireproof” status at this point, but the authorities caught up with him months later and started asking some searching questions about his tactics and conduct.

Xu came from a modest background, with his parents being a factory worker and a homemaker, and he was entirely self-taught when it came to financial trading. It appears that he dedicated his life to the stock market and had virtually no other interests outside of investing.

Whether his success was down to an uncanny stock picking ability and a phenomenal sense of timing or whether there was something more untoward helping him to make money, the fact remains that Xu Xiang is now in a detention facility on charges of insider trading and his legendary status has been well and truly tarnished.

Guest Author :

Emma Miah became interested in the stock market from a young age, and has always worked in the finance world. The economy and stock market fascinate her, and she enjoys writing on these topics in her spare time.

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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